In Alleged $194 Million Scam, Florida Hedge Fund Operators Of KL Financial Group Face Fraud And Other Criminal Charges

In Florida, three people were charged with fraud and other criminal offenses in connection with a scam that allegedly lost almost $195 million of investors’ money.

Jung (John) Bae Kim, his brother Yung Kim, and brother Won Sok Lee were named as the defendants in a 35-count indictment that was unsealed in the U.S. District Court for the Southern District of Florida. While John Kim has been arrested, the other two men are still fugitives.

Charges in the indictment include money laundering, multiple counts of mail and wire fraud, conspiracy to commit mail and wire fraud, and conspiracy to commit money laundering. KL Group LLC, KL Triangulum Management LLC, and KL Florida LLC, the three hedge fund-adviser companies owned and operated by the three defendants, were also named in the indictment. The charges against the three companies were related to the alleged investment fraud conspiracy only.

The criminal indictment says that the defendants organized a “massive” investment fraud by using hedge funds that were under the KL Group umbrella. From 2000-2005, Some 250 clients are said to have invested approximately $194 million in the alleged scheme. According to the indictment, the bulk of this money was allegedly lost by the defendants, who are accused of spending the funds on their personal use and trading operations.

John Kim is also accused, in the indictment, of setting up “opulent” offices with an ocean view in West Palm Beach, Florida. These offices are said to have housed high-end furniture, computer equipment, flat screen televisions, and other equipment used to furnish an impressive trading area. Potential investors would be toured through the office, where they would see employees supposedly using Kim’s proprietary system to participate in day trading activities. The defendants allegedly told clients that Kim made a nearly $20 million profit in one day by taking short and long positions in a single stock.

The reality was that the KL Financial Group’s funds were continuing to lose millions of dollars. The group would pay old investors back by using the new investors’ funds. Kim and the two defendants are also accused of using counterfeit documents, which included false information on investment returns. The documents were allegedly used to mislead investors, lawyers, and their accountants.

The charges against the three men are among the latest in a number of federal enforcement actions against lead defendant John Kim and his companies. The SEC filed a civil action to shut down KL Group in 2005, and last March, Kim agreed to settle the charges through sanctions.